Q1 Chairman: Good afternoon everybody.
Welcome to the Foreign Secretary and his team. We are pleased
to have you here, Jack. We know you are extremely busy this week,
as always. We want to obviously focus on the presidency of the
European Union and the preparations for the summit and other issues
that are going on. Perhaps I could begin by asking you about the
EU budget. I know you are in the middle of negotiations, and we
appreciate that sometimes you do not want to reveal everything,
but, nevertheless, could you tell us at this moment how many other
states support our position?

Mr Straw: I am not, with respect,
going to offer a view about that, because we are not at a stage
where we can make that assessment. This is an iterative process
where we put forward proposals, we listen to what colleagues have
to say. We are in the process of revising these, so the situation
is this. We put forward proposals last week and they were made
available to the House at the same time as they were made available
to European Member States. We have been listening very carefully
to reactions to those proposals. I ran what was delicately called
a "conclave" of European foreign ministers to discuss
just this last Wednesday, and since then there have been bilateral
meetings, as you will be aware, between the Prime Minister and
heads of government of almost every one of the other 24 Member
States. I have had a series of discussions with my colleague foreign
ministers, Douglas Alexander with his colleague Europe ministers,
and of course at official level there has been very intensive
discussion. We are currently agreeing some of the revisions to
the proposals, and they will be made available tomorrow, including,
may I say, by way of written ministerial statement tomorrow morning,
so we will be publishing the statement with the full details annexed.
I am doing it tomorrow morning because in the afternoon there
is a debate on the prospects of the European Council, effectively
a debate about the budget, so that colleagues on all sides of
the House have an opportunity to study the revisions before the
debate. So that is where we have got to. These are complex negotiations.
They always are; they always will be. I have never been in a negotiation
of this complexity within the European Union where people disclose
their final hand until they have to, and I am not going to offer
a view about whether or not there is success on Thursday, Friday
or Saturday. One of the other problems about budget negotiations,
as we saw at Luxembourg, is that it is literally, to use the cliche,
a zero sum game. There is an issue about the overall size of the
budgetthe bigger the budget the better it is for those
who are benefiting from the budget net, the worse it is for those
who are contributing netand within that overall budget,
at the very level of budget, there are very important issues about
new benefits from what spending, so it is difficult. For our part,
we are doing everything we can to get a deal, but we are not interested
in a deal at any price.

Q2 Mr Horam: Could I come back to
what you did make public last week, i.e. your negotiating position.
Part of that was a link with the Common Agricultural Policy?

Mr Straw: Yes.

Q3 Mr Horam: That is one of your
points. A review conducted by the Commission to be submitted in
2000?

Mr Straw: The review, yes.

Q4 Mr Horam: Right?

Mr Straw: Yes.

Q5 Mr Horam: You are proposing a
review of the CAP?

Mr Straw: Yes.

Q6 Mr Horam: It is the case, I want
you to correct me if I am wrong, that in 2002 the Council did
agree that there would be no change in the funding of the CAP
until 2013?

Mr Straw: Not quite, is the answer.
I can get you the exact text of what was agreed because I was
there, but part of the conclusions for that section relating to
the CAP began with the preamble, words to the effect that, "This
is without prejudice to decisions on the financial perspective
for 2007/2013". I am sorry, I should have introduced David
Frost and Tim Barrow. Tim is the Deputy Political Director and
David is one of the Deputy Directors Europe. But it is words to
that effect. It related, as I recall, directly to direct payments,
which is a big chunk of CAP spending. It is one of the debates
we are having with the French, because they say that back in October
2002 we set the CAP in stone between 2007 and 2013. It is not
the case. I would be very happy to provide you with the conclusions
that I, indeed, set up.

Q7 Mr Horam: You contend that is
not the case?

Mr Straw: I do not only contend
that, I was there, and, as I say, the rubric is clear. We can
send out for the conclusions. Let us do so.

Q8 Mr Horam: You are saying it is
subject to what might be agreed at this Council?

Mr Straw: I am saying that, as
I recall the paragraph, it opened with the wordsand it
was to do specifically with direct payments, which is part, although
not the whole, of CAP spending"This is without prejudice
to decisions on future funding in the financial perspective 2007
to 2013."

Q9 Mr Horam: So that is what you
are relying on?

Mr Straw: We are also relying.
It is never the case, even if there had been that decision, that
it is impossible to change subsequently a decision made now getting
on for four years ago, and by the time the review happens it would
be six years ago, so it is always the case, as with Parliament.
Parliament can decide one thing one day, and, if there is a majority,
two days later it can change, but, as it happens, these were difficult
negotiations that took place in October 2002 and they went through
to 2003. I was there then, I know what was decided and it was
a process of reform of the Common Agricultural Policy, first of
all. So it is also inaccurate in its own terms to suggest that
the CAP was going to remain static, because it has not. Just in
the last week we have had this good news on the negotiations in
respect of the Sugar Regime. So it was a process of reform, plus
the fact that the conclusions made clear, as I said, that it was
without prejudice to future decisions on the financial perspective.

Q10 Mr Horam: As you have just said,
we have had some recent news about the Sugar Regime, for example.
As I understand it, the reforms that flowed from 2002, reforms
of agricultural practice, are still coming in, will come in this
year, some more will come in next year. One of the criticisms
of your position could be that it is rather early to be having
a review?

Mr Straw: By the way, I have just
had the precise wording passed to me. "It was explicitly
agreed without prejudice to future decisions on the CAP and financing
of the European Union after 2006", and it set ceilings, not
targets, for expenditure. I am not in any doubt that what we are
proposing is fully consistent with what was agreed in 2002. It
is simply wrong to suggest that, as I say, the decisions made
in 2002 were set in concrete. I am sorry, you were asking me a
question about sugar.

Q11 Mr Horam: No, I do not want to
talk about sugar. I was just saying that, given this is a continuous
process of reform of the agricultural system in Europe which is
happening this year and happening next year as a consequence of
decisions taken in 2002, some would say it is a bit early to have
a review of the whole system.

Mr Straw: I do not think it is
at all. I am sorry, we may just have to disagree about that. I
think that it is exactly the right moment, indeed some would say
it is overdue, to have a review of the policies and the funding
of those policies of the European Union. There has been change,
let me make that clear, and the proportion of the total budget
spent on the CAP has been going down in recent yearsit
is a process we have been pushingas has the total size
of the budget relative to Member States' economies also been gradually
reducing, and that is a process we want to accelerate within this
budget; but if you look at the negotiations which opened in Hong
Kong today, which are directly linked to this, there is a big
agenda of change.

Q12 Mr Horam: Market access?

Mr Straw: It is market access,
essentially, so that we open up our markets for agriculture. Let
me say, we get other people's markets for agriculture opened up
as well, and I believe that the French and the British and many
other farmers will be able to do very well in exporting to third
countries, so this is not a situation where we are going to impoverish
rural areas as a result of these changes, but the balance of agriculture
will change and in return for that, of course, what we get to
is non-agricultural market access, including manufactured goods
and services, so it is a big agenda. I cannot predict what is
going to happen in Hong Kong, nobody can, but what I am clear
about, Mr Horam, is that this pressure for change in the Common
Agricultural Policy will not and cannot go away because there
is a changing reality in the rest of the world.

Q13 Mr Horam: I understand that completely.

Mr Straw: It is called globalisation.
It is also the called impatience by developing countries who are
not going to tolerate for very much longer these very high levels
of subsidies being paid to European, American and Japanese agriculture.

Q14 Mr Horam: What opinion have you
formed over the last six months while we have been the Chair about
the reaction of other Member States to your view as expressed
now?

Mr Straw: Many are happy about
this; some are not. It is inevitable within negotiations, those
that are not particularly happy, that you have to goad for persuasion
and negotiation, and it is hardly a secret that the French government
have reservations, to put it at its mildest, about a review which
could impact in the next financial perspective. That is another
of these negotiations.

Q15 Chairman: Can I ask a specific
question about the detail of the proposals that we are putting
forward. As I understand it, although your proposal is for a reduction
of the expenditure level that was originally proposed by the Commission
and lower than Luxembourg, you are arguing for a substantial increase
in some aspects of the European Union funding, particularly common
foreign and security policy. Why is that necessary?

Mr Straw: Let me give you some
totals here. The Commission recommended a budget set at 1.24%
of what is called GNI (gross national income) of the European
Union Member States, which would have been 1,025 billion
over the seven-year period, and that was impossible. The Luxembourg
Presidency recommended a budget of 1.06% of GNI, which is 870
billion. We are proposing in last Wednesday's negotiating box
a budget of about 1.026, and it is 847 billion. The budget for
the common foreign and security policy was 16 million last
year. It has been put up to 100 million this year and there
are some proposals for it to increase further per year in the
future. First of all, these are small sums compared with the total,
Chairman. Secondly, why they are necessary is because, not least
under our presidency, the common foreign and security policy has
been made operational. It is no longer just a rhetorical policy.
We are operating it in negotiations, as we are in respect of Iran,
but also in respect of these missions, and so we have had a mission
to Acehwe got very little coverage, but a really important
mission there, as important in its own way as the decommissioning
programmes undertaken in Northern Ireland and the European Union
have run it entirelywe have also got the continuing mission
in Rafa, and I gather from one member informally that you were
impressed with what was going on, but these things cost money,
that is why.

Q16 Chairman: You are revising your
proposal. Is it likely then that the figure that you have just
quoted (1.026) is actually going to be significantly raised tomorrow
in order to try and get an agreement that will end up somewhere
near where the Luxembourgers were when we finally got an agreement.

Mr Straw: I am not going to, if
you do not mind, make predictions about where this may end up,
not least because I cannot, but if Luxembourg had been acceptable
to us we would have accepted it; so would the other four Member
States who turned it down. There will, indeed, be some revisions,
but they are going to be revisions around the level we have proposed.

Q17 Mr Horam: Can I ask you one quick
question about the Luxembourg suggestion, which was, if I remember
rightly, a freezing of the UK rebate, which would mean it would
be the same each year as opposed to at the moment a fluctuating
amount, which has some disadvantages because it means that sometimes
we do not bid for things because we know that it will reduce our
rebate. Would you be in favour of a steady amount rather than

Mr Straw: Look, what happened
with Luxembourg, Luxembourg was under pressure to meet various
expenditure claims by other Member States which they did, and
then they effectively gave us the bill. Just to give you some
of the ball park figures, our net contribution in this financial
perspective, which ends next year, is 39 billion over the
period. Without any change in any of the financial arrangements,
including the rebate regulation, our net contribution for the
next financial perspective from 2007 to 2013 inclusive is due
to rise to 50 billion, and that is principally but not wholly
to pay for the costs of enlargement. What the Luxembourgers said
is that, having risen already by 11 billion, it should rise by
a further 25 billion to 75, so it was an increase of about 93%
on 39, and they were going to do that by freezing the abatement,
and it is simply unacceptable and it is unacceptable because of
the cost to us and it is unacceptable in principle as well. What
we have said in our proposals is that we recognise, number one,
that when the rebate regulations were negotiated in 1984 there
was no expectation whatsoever that within a period of 20 years
the European Union would expand to take into its membership what
at that stage were Soviet satellites. The issue before the Union
was essentially making up membership within Western Europe, not
that, and nobody has ever suggested that the UK, as one of the
more prosperous countries, should not make a fair contribution
towards the costs of enlargement and of expanding those economies,
and that is why we have made proposals in this negotiating box
for an increase over the 50 billion starting point, default setting,
of around eight billion euros, but we have also said very clearly
that that is linked to the abatement or what would otherwise be
the abatement, on structural and cohesion funds in the enlarged
accession countries, the A10 countries. Where we are adamant is
that the rebate should be untouched in respect of any spending
inside the pre-existing 15 Member States and agriculture anywhere
in the European Union, unless and until there are the major reforms
that we have been seeking. So, that is the background. Chairman,
you did ask me earlier about are some budget headings going to
increase. It is not just the FSP which will be increased. Structural
cohesion fund spending to the accession ten countries will increase
very significantly by a factor of five, I think, on current levels
of spending, and there will be corresponding reductions.

Q18 Sir John Stanley: Foreign Secretary,
I do not know whether you have given consideration to yours and
the Prime Minister's negotiating strategy on this, but has it
not been a pretty disastrous misjudgment to take up a position
sustained over months, if not years, of the British rebate as
non-negotiable only to come to a position where it is patently
obvious it is now wholly negotiable and with a bottom line for
reasons that we understand at this particular moment? What credibility
are you and the Foreign Office and the British Government going
to have in future EU negotiations when you take the position that
something is non-negotiable when you have been so clearly driven
from that particular position on this particular occasion?

Mr Straw: I do not accept that
we have. I have certainly never used the word "non negotiable",
as far as I recall. What I have said is that the rebate is fully
justified and, moreover, we are not negotiating on the rebate
as it was agreed in 1984. I have just spelt out the fact that
the rebate will not be affected by a cent or a penny in respect
of any aspect of spending within the E15 nor any aspect of agricultural
spending anywhere inside the Union. What, however, I note is that
nobody in all the debates on accession on any side has ever said
that the much poorer countries inside the accession ten states
should effectively pay their share towards our rebate, because
the rebate was never designed like that. The rebate, let us be
clear, was designed to ensure that there was equity between otherwise
similar states, principally France, Italy and the UK, in terms
of our contribution to the EU. There was not equity because of
the imbalance in spending towards agriculture, and that was a
reason why the rebate was obtained. Let me say to you that there
has not been equity until very recently, and one of the things
that is going to happen under our proposals is that there will
in future be a broad equity in spending between France, Italy
and the UK for the first time ever, something that the then Mrs
Thatcher was unable to achieve. As I say, going back to the core
of your point, I think our partners understand our position exactly.
It was precisely because we were not willing to negotiate the
rebate away in June that the Prime Minister and I dug in and one
of the reasons why there was no agreement, but we were joined
by four other Member States, and so, far from Member States drawing
the conclusion you suggested, Sir John, they have drawn the opposite
one, which is that we are tough negotiators and if we think a
deal is unsatisfactory for the United Kingdom, and I may say for
the European Union, we will simply not agree it, and they all
understand that.

Q19 Sir John Stanley: Are you assuring
the Committee that as far as the element of a rebate is concerned
which is applicable to the previous Member States before the recent
enlargement, that the value of that will be wholly maintained
in the negotiation?

Mr Straw: Yes, and it goes back
to points the Prime Minister has made and, indeed, I note from
recent debate in the House of Lords, Lord Howe, who was there
at start, has made, but the rebate is an anomaly, but it is an
anomaly built on a much bigger anomaly, namely the distortions
of spending throughout the European Union. It will remain unamended
within the existing 15 Member States unless and until there is
agreement to remove the underlying causes of the rebate, and if
there were and we have then got into a more rational overall pattern
of spending and revenue raising, then the case for the rebate
would fall away, but in my judgment that will be a long way off,
and it is certainly not for these negotiations.